Cancellation of Debt, or federal form 1099-C, can cause major hiccups in tax returns causing you to lose your refund, or worse, owe the IRS substantial amounts. A Cancellation of Debt is created when a debt that you owe is discharged or written off by a creditor. The creditor will then issue a 1099-C for the amount you owed them. Even for minor amounts, this cancellation of debt will cause a significant increase in the amount of tax you owe at the end of the year. If you do not understand how a Cancellation of Debt works, you can end up owing thousands on your tax returns and be subject to aggressive IRS collections!
Cancellation of Debt (Federal form 1099-C) will be provided during any of the following times:
- Foreclosure of a Residence or property
- Repossession of vehicle or personal property
- Defaulted Credit Cards
- Failure to Pay of Secured Loans or Debts
Cancellation of Debt and ForeclosuresCancellation of Debt forms is affecting a record number of Americans. Many people are finding that they are liable for the debts after their homes are foreclosed on by their banking institution. There are some circumstances when a cancellation of debt is non-taxable and therefore will not cause you to owe any taxes. If you receive a 1099-C, Cancellation of Debt for your foreclosure, ask yourself the following:
- Was this home my primary residence?
- Did I live in the home for a minimum of two years?
- Was the home foreclosed on in the years 2007-2011?
If you answer yes to any of the following, your cancellation of debt may not be taxable. However if you fail to report your Cancellation of Debt properly on your income tax return, you can end up owing the IRS thousands of dollars in penalties and interest! Contactinga professional tax preparer would be the best course of action to ensure that your tax returns are prepared properly and you are not liable for any debt that may stem from your foreclosure.
Fill out a quick survey and one of the companies in our network will contact you regarding your questions about Cancellation of Debt. Rest assured you will only work with companies who hold a B or better rating with the Better Business Bureau. All advisors are Tax Preparation Professionals, Tax Attorney's or Enrolled Agents, and have years of experience dealing with Cancellation of Debt.
Cancellation of Debt and Repossessions or Credit Card Debts Cancellation of Debt forms can be issued if you have a car, truck, boat, motorcycle, ATV or any other similar item repossessed by the lender. Justlike any other 1099 or W-2, this is now income that must be reported to the IRS and is subject to tax. For instance, your car is repossessed, and you owed $20,000.00 to ABC Bank for the remainder of the loan. A 1099-C from ABC Bank must now be reported onyour tax returns and it appears that you made an additional $20,000.00 that year! Your $800.00 refund could now be a $2,500.00 debt to the IRS.
Credit Card debts work the same way. If the credit card company writes off an amount that you owe them, they will issue you a Cancellation of Debt for that amount. Now it will appear that you made more money that year than you truly did and cause you to owe the IRS money!
Cancellation of Debt: What you need to knowCancellation of Debt, 1099-C, is more widely used than ever before. If you have a debt that is being written off by a creditor, there are several things you can do to protect yourself from further financial harm. The Official IRS website offers a free publication named Publication 4681 that helps people find out if their Cancellation of Debt is going to be considered taxable income. There are many ways that you can prove you are not responsible for the debt, and even that you are insolvent. The bestcourse of action is to find a qualified representative that will be able to assist you in not only preparing your tax return but insuring you have utilized the proper claim to dismiss the debt from your tax returns. This can save you thousands of dollars in IRS penalties and interest.
Call now or fill out the form below for a free tax debt consultation to get Cancellation of Debt help! We'll only connect you with a tax debt relief company holding at least a B rating with the Better Business Bureau.